The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.

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Shared National Credit Data Reflect Good Credit Quality Performance, Large Increase in Credit Commitment Volume and Small Rise in Riskier Deals

September 25, 2006

Circular No. 11811

To All Depository Institutions and Others Concerned
in the Second Federal Reserve District:

The volume of syndicated credits rose rapidly, in part reflecting a rise in merger and acquisition activity over the past year, according to the Shared National Credit review, reported by federal bank and thrift regulators. The review noted a small increase in problem credits as a share of commitments in 2006.

The bulk of this increase was associated with credits held by nonbank entities while problem loans at regulated institutions, particularly those with insured deposits, grew slightly. Deterioration in exposures to the manufacturing sector, primarily the automotive industry, accounted for most of the softening in asset quality.

The review affirmed that most other industries exhibit improved credit quality from peak problem levels experienced only a few years ago. However, examiners also found a continued easing of underwriting standards in the syndicated lending market in general, particularly in noninvestment grade or leveraged credit facilities.

The results—reported by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision—are based on analyses prepared in the second quarter of 2006 and reflect business and economic conditions at that time.